The Stock Exchange of Hong Kong Limited (“HKEx”) is currently undertaking a period of consultation on Listing Rule changes associated with Risk Management and Internal Controls. HKEx has published a consultation paper (the “Consultation Paper”) on proposed revisions to the internal controls section of the Corporate Governance Code and Corporate Governance Report (“Code”) 1
Consistent with corporate governance developments and trends in various jurisdictions, the core objective of the Consultation Paper is to further highlight the importance of risk management. Other proposals to improve the Code include clearly specifying the respective roles and responsibilities of the board, management and the internal audit function; as well as to provide direction as to specific disclosures that issuers should make in the Corporate Governance Report.
Drawing experience from Singapore, Australia, the UK, the US and Mainland China, the core objectives of the Consultation Paper are to:
- Confirm that internal controls are an important part of risk management
- Increase accountability of the board and management by clearly defining their roles and responsibilities regarding risk management and internal controls
- Accentuate transparency of the issuer’s risk management and internal controls by upgrading the recommendation for issuers to disclose their policies, process and details of their annual review of the effectiveness of their risk management and internal control systems
- Strengthen the oversight of issuer’s risk management and internal control systems by upgrading the recommendation for issuers to have an internal audit function
The proposals are set out below:
Click here to view the table.
HKEx is now evaluating market views on these changes, and it is expected to publish consultation conclusions within the next few months. Given that, HKEx listed companies are recommended to review their disclosures and internal control systems to ensure that they are capable of complying with the new requirements when they are introduced.